If you would like to own your own home but are unable to afford the mortgage, shared ownership properties could allow you to buy a share of a property from the landlord and rent the remaining share at a reduced rate.
As a government-funded programme, it is designed to help people get on the property ladder through part-buying and part-renting to reduce the cost of ownership.
The following guide sets out how buying a shared ownership property works in England.
How does the shared ownership properties scheme work?
Under the shared ownership properties scheme, your share can be between 25% and 75% of the property’s value, with an option to buy more at a later stage. This option to increase your share is known as “staircasing”.
You can opt to buy, or staircase, up to 100% of the property’s value, thereby eventually owning the property outright. For any outstanding share you will be liable to pay rent, albeit at a below-market-value rate. If you choose to increase your share, your monthly mortgage payments will increase and your rent will decrease, up until the stage where you own 100% of your property.
As the scheme works on the basis of part buy/part rent, you will be buying your share of the property on a long leasehold, rather than on a freehold basis.
Are you eligible to buy a shared ownership property?
You can benefit from the shared ownership properties scheme if you are a first-time buyer, you used to own a home but are currently unable to afford to buy one, or you are an existing shared owner looking to move. If you are already a homeowner, you must have sold your current home before or at the point of completion on your new property.
You do not need to be living in a council or housing association owned home to be eligible. However, you must meet the following eligibility requirements:
- You must be at least 18 years old.
- You must have an annual household income of less than £80,000 (or £90,000 in London).
- You are unable to afford to buy a home suitable for your housing needs on the open market.
- You are not in mortgage or rent arrears, and have a good credit history.
You should also check for any additional eligibility requirements of the council or housing association selling the property.
Under the shared ownership properties scheme, military personnel will be given priority over other groups. However, some councils or housing associations may have other priority groups based on local housing needs.
How can you fund the purchase of a shared ownership property?
When buying a property under the shared ownership properties scheme you will need a mortgage to pay for your share of the purchase price.
Typically, you will also need a minimum 5% deposit. However, the amount of money required for a deposit on your share will be lower when compared to the amount that would be required when purchasing outright.
Under the shared ownership properties scheme, the cost of ownership is reduced in the following ways:
- Your share in your new home can be as little as 25%.
- Your deposit can be as little as 5% of the price of that share, not of the whole property.
- The rent will be less than the rate charged on the open market, typically at 2.75% of the property value per annum.
However, you will need to factor in any purchase costs, although stamp duty land tax can generally be deferred until your share reaches 80%. Further, if you are buying a flat, there may also be a monthly service charge and ground rent.
Whilst your landlord will usually be responsible for the maintenance and repair of any communal areas if you buy a share in a flat, these costs will often be passed on to you and other shared owners through any service charges. You will also be responsible for any repairs and maintenance costs that may arise on your property, regardless of your percentage share.
What is the process to buy a shared ownership property?
If you are considering buying a home through the share ownership properties scheme, the following steps will need to be taken:
- Speak to the housing team at your local council or housing association, to see whether the scheme is available in your area and whether you are eligible to apply.
- Identify shared ownership properties that you are interested in and arrange viewings. Having viewed a property that you would like to buy a share in, you may be required to put down a reservation fee.
- Attend a financial assessment meeting with your housing provider to assess what share in the property you can afford to purchase.
- Make enquiries with lenders to see if you are eligible for a mortgage based on the percentage share you are seeking to buy. You will again have to undergo affordability checks, taking into account any rent you will be required to pay for any remaining share of the property.
- Appoint a solicitor to undertake the necessary conveyancing to purchase your share of the property. It would be advisable to use a solicitor that specialises in buying and selling shared ownership properties.
What about other housing schemes?
In addition to the shared ownership properties scheme, there are a number of other government-backed affordable home ownership schemes, including the “shared equity” scheme.
This scheme provides buyers with an equity loan of up to 20% of the value of the property (40% in London). In this way, a buyer only needs a 5% deposit, plus a 75% mortgage to make up the rest (55% in London).
With the shared equity scheme, you own all of the property from the start but have to repay a proportion of its value when you sell, equivalent to the proportion of government equity you took to buy it. In contrast, the shared ownership properties scheme works on the basis that you only own part of the property, with an option to buy more at a later stage.
Are there any pitfalls of purchasing shared ownership properties?
Although the shared ownership properties scheme can help people to get onto the property ladder, there are still some pitfalls – from being responsible for all maintenance costs on your home to having to pay valuation and legal fees every time you opt to purchase an additional share.
However, one major pitfall that is often overlooked is that shared ownership is, as a matter of law, a type of tenancy – albeit with an option to buy the whole property at a later date.
As such, the landlord or housing association will remain the legal owner of the property until you have purchased a 100% share, leaving you exposed to the risk of eviction in the event of rent arrears. Moreover, if evicted, it is highly unlikely that you would be entitled to a refund of your purchase price.
Seeking legal advice when buying a shared ownership property
A solicitor specialising in these types of schemes will be able to advise you on all the pros and cons. You may also want specialist advice as to who can inherit your percentage share in a shared ownership property. The rules here are not straight forward, and you should always seek expert legal advice to ensure that those you love will benefit from your investment.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal advice, nor is it a complete or authoritative statement of the law, and should not be treated as such. Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission. Before acting on any of the information contained herein, expert legal advice should be sought.